Draghi’s Master Plan Matrix

Tyler Durden's picture

Following the dismal failure of Draghi's OpEd this morning (which we assume was a reprint of his much-anticipated - and now cancelled - speech from J-Hole) to jawbone anything but a very brief pop in EURUSD, we thought it useful to aggregate all the great-and-good deeds the ECB elder is considering (and why). Europe remains in a long-term deleveraging phase (as much of the developed world finds itself). This lack-of-demand for credit has crushed the so-called 'money-multiplier in Europe, just as it did in the US (which we discussed in detail here as worse than the Depression); as banks have simply stockpiled the vast sums of LTRO/ECB-collateralized funds. This has left him feeling less than his normal omnipotent self and so he is forced to act even more extremely (or talk about acting that way). The following matrix from Morgan Stanley outlines his policy options under various scenarios as we note few (aside from a rate cut) are actionable in the short-term, and even fewer are likely to make any difference to this long-term deleveraging-cycle.


Via Morgan Stanley - European Loans & Deposits Tracker

While we may have avoided a broad credit crunch, the ‘Great Deleveraging’ in Europe seems far from over; history suggests that European banks have a long way to go and the LTRO will slow but not stop the process. European banks will continue to de-globalise, in our view. We think that European banks could deleverage by €1.5-2.5tr over the next 18 months, but history suggests that, over a longer timeframe – say, 5-6 years – this could reach €4.5tr assuming zero deposit growth.



But lending continued to slow in June. A money multiplier at record lows implies that banks are still stockpiling LTRO funds (and as Draghi noted - the transmission mechanism is not working)...


...and so ahead of next Thursday’s ECB meeting, we expect the Governing Council will cut the refi rate by 25bp to 0.5% and the depo rate to -0.25%.


Below, we summarise all the policy options at the disposal of the ECB.


At this stage, we don’t expect another 3Y LTRO, a further widening of the collateral pool nor an immediate commencement of the bond purchase programme announced in August.



Charts: Morgan Stanley

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Xibalba's picture

Ever play 3 card Monti? 

Hype Alert's picture

Can't read the policy options summary.  Is there a link to it?

slewie the pi-rat's picture


i looked and found:

  • eat shit
  • lay eggs
  • die young

and not one word about the "libor"

new plan: 

  1. give $1Tril to banks
  2. say they will "deleverage by $1 Tril over 18 moints"
  3. see what happens

old plan:

  1. give $1 Tril to banks
  2. say it is to "save the economy"
  3. see what happens

so we can see how things are 'evolving' here

heart be still! :>   velocity of EU deposits

KickIce's picture

Option 1:  Print money but label it X. 

Option 2: Print money but label it Y.

Option 3: Print money but label it Z.

trebuchet's picture



The article says "  This lack-of-demand for credit .... as banks stockpile funds"  




There is a MASSIVE demand for credit.  The banks no longer lend at rates and on terms they were lending before. There is a shortage of funds to lend - they have the quality assets wrapped up on their balance sheets to   cover the CRAP the accumulated since 2007.


Cognitive Dissonance's picture

That bloke appears to be in cardiac arrest. Code Black and Blue. Someone grab the crash cart.

Dr. Bernanke, please report to the emergency room stat.

(Overheard in the ER) <What do you mean you're not a real doctor?>

Debeachesand Jerseyshores's picture

There is more down lines in these graphs then they have in New Orleans.

saturn's picture

In reply to Cognitive Dissonance:

"Nope. I am Dr. Feelgood!" -- http://www.flickr.com/photos/expd/7620162350/

Duke of Con Dao's picture

perhaps Obama meant to say You didn't Build that Frankenstein, Dr Draghi!

YouTube - "You Didn't Build That Frankenstein!' sez President Obama


when you're on a roll you're on a roll... el Dukerino

marco1324's picture

LTRO/ECB-collateralized funds = Bailout

With any trenching the bank walks away scotfree as they are to big to fail remember.

economicfreefall's picture

I know Draghi loves these kind of news as it inches him closer to a printing mandate, just like the one Bernanke has. He must be jealous, even though he for sure has his ways around that restriction.

Denmark's economic output dropped more sharply than expected in the second quarter of 2012, as solid exports failed to offset poor private consumption and declining investments, the Danish statistics office, or Danmarks Statistik, said Wednesday.

According to Danmarks Statistik's first reading, the small Nordic nation's gross domestic product contracted by 0.5% on the quarter, and 0.9% on the year in the second quarter, falling markedly short of economists' average estimates of 0.1% contraction both against the first quarter and the year-earlier second quarter.

In the first quarter, Denmark's GDP rose 0.4% on the quarter and 0.3% on the year. https://miningstockvaluator.com/news.php?id=29&start=0

Atomizer's picture



Pick your favorite CPUSA sponsored US city to compare video surroundings. It looks like downtown San Fruitcisco too me.  

Poverty back in Europe: Brands target nouveau poor 

Austerity, a solution for trickled up poverty schemes within the bloated government budget confines..


mendigo's picture

We have three...no four! We have four secret wespons!